3 Reasons Corning Incorporated's Stock Could Fall

Corning Incorporated (NYSE: GLW) is more than a century old, and it has proven adept at surviving as the world around it changes. But does that make Corning stock a good investment today?

Shares of the glassmaker have returned around 13% so far in 2014, which is well ahead of the 8.5% year-to-date return achieved by the S&P 500. But that also included a nearly 10% drop in Corning shares a few weeks ago, after its second-quarter results left the market underwhelmed. Management had plenty to say to put those results in context, but it's still an excellent exercise for investors to consider the challenges their company might face. Here are three reasons, then, that Corning stock could possibly fall going forward.

Weak tablet growth is hurting cover glass salesFirst,Corning CFO Jim Flaws insisted their "only disappointment" in the second quarter was "slower growth in the cover glass market." Specifically, Corning sees shipment level volume for the cover glass market increasing around 20% year over year, which is significantly less than the 30% it was modeling earlier this year.

To explain the impending shortfall, management pointed primarily to their outlook for the overall media tablet market, which is now expected to grow around 8% to 10%. To borrow Flaws' words, that's "nowhere near the pace we had expected entering 2014." Worse yet, Corning says, is that most of the growth is happening in "unbranded" media tablets, where Gorilla Glass' market share is significantly lower.

If Corning wants its cover glass business to thrive, it needs not only for the overall tablet market to pick up the pace, but also to bring more unbranded media tablet makers on board.

Cupertino might be a bad influenceTo a lesser extent, Corning also noted Gorilla Glass sales were hurt by lower-than-expected retail demand for smartphones. But going forward, one of the most pervasive smartphone rumors is that Apple (NASDAQ: AAPL) might ditch Gorilla Glass in favor of sapphire, starting with the expected Sept. 9, 2014 unveiling of the iPhone 6.

But I've already written at length to argue that Apple leaving Gorilla Glass behind would only have a small negative influence on Corning's near-term results. At the very worst, my calculations showed Apple's overall contribution should represent less than 3% of Corning's total revenue.

The bigger worry here, however, is that other device manufacturers might follow suit over the long term, especially if sapphire proves a significant differentiator for Apple's newest devices. That doesn't mean Corning will take the news lying down -- it's widely expected, for example, to launch Gorilla Glass 4 later this year -- but investors should keep a close eye on how the industry responds if Apple makes the switch.

LCD glass prices are still droppingFinally,don't forget Corning's Display Technologies segment, which is its single largest business and generated $1.1 billion in sales last quarter alone, or 43% of total revenue. Most notably, that includes sales of LCD glass, which has suffered through continued price declines over the past several quarters.

To Corning's credit, those price declines were more moderate in Q2 than they were last quarter, and they are expected to further moderate in the current quarter, closer to rates Corning experienced for most of 2013.

At the same time, investors should keep in mind that the 2014 FIFA World Cup drove what could be a temporary surge in LCD glass demand. According to management, "this demand may have pulled in some television units from the back half of the year, so we have not made any changes to our TV unit sales forecast for the full year at this time." They did, however, increase their TV screen size forecast slightly. But I still wouldn't be surprised if LCD glass demand simply isn't as strong for the remainder of the year.

Foolish takeawayThis doesn't mean Corning is a bad investment, and the stock has handsomely rewarded shareholders over the past year. But like any company in the technology space, Corning still needs to overcome a number of hurdles that could stem the long-term success of its businesses. As it stands, investors would be wise to keep tabs on how Corning reacts to these challenges.

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